Award of Punitive Damages: More Complicated than You Might Think, or Is It?

All of us have some sort of preconceived notion about punitive damages that probably comes from some Hollywood film or John Grisham novel. Punitive damages are damages that are awarded to punish the defendant for his or her wrongdoing and to deter outrageous conduct. However, one must ask, what conduct rises to that level? How do you know when someone's conduct is so outrageous and reckless that punitive damages are warranted? Much like the famous statement of U.S. Supreme Court Justice Potter Stewart when describing the threshold for obscenity, "I know it when I see it."

Bad driving by itself is not grounds for punitive damages, but drunken driving accidents involving injuries certainly meets that standard. Striking a pedestrian in a crosswalk does not warrant punitive damages, but a driver who causes an accident because he is "road raging" does. A doctor who neglects a patient once is not enough to seek punitive damages, but a doctor who displays a pattern and practice of neglecting patients deserves the punishment of punitive damages.

Traditional Arguments for Seeking Punitive Damages:
I seek punitive damages against defendants when their conduct is outrageous enough to make me believe that their conduct should be punished and deterred. Whenever I have a client who has been injured by a drunk driver, I automatically seek punitive damages. With all of the public service announcements against drunk driving and the availability of designated drivers and cab services, there is truly no valid excuse for someone to drive while intoxicated.

Also, seeking punitive damages against a defendant provides strategic benefits at trial because directing a jury's attention to the defendant's inexcusable conduct can properly reinforce to the jury that its job is to determine what the community safety standards will be. For example, my client's injuries might not be very severe, but the conduct by the defendant in causing the car accident might be so outrageous that the jury should properly focus on the defendant's conduct instead of on my client's injuries. After all, the jury members or their families could be the next people to be injured by the drunk driver if his conduct goes undeterred.

Traditional Arguments Against Seeking Punitive Damages:
According to current Colorado law, insurance companies are not obligated to pay punitive damages assessed against the at-fault driver if such damages are awarded at trial. Nevertheless, insurance companies are obligated to pay the damages for medical bills, pain and suffering, and permanent impairment up to the policy limits of their insured.

Accordingly, seeking punitive damages might backfire financially because if a jury awards a verdict that is comprised mostly of punitive damages instead of damages for medical bills and pain and suffering, my client might not actually receive much money despite the large verdict. After all, if the insurance company is not obligated to pay punitive damages, my client will be forced to go after the defendant's personal assets for compensation, assuming that the defendant actually has any assets of value.

Is There A Consensus As to Whether or Not You Should Pursue Punitive Damages?
Because punitive damages are not always collectible even if awarded, there is some dispute as to whether it is worth it to even pursue punitive damages. In the legal community, there is absolutely no consensus. But speaking as a trial lawyer who has won and collected punitive damages from insurance companies in the past, the issue is quite clear to me.

The only Colorado Supreme Court case that addresses the issue of whether an insurance company has to pay punitive damages is Lira v. Shelter Insurance. This case stands for the proposition that insurance companies are not required to consider the effect of a punitive damages award in considering the settlement value of a case. I believe that this case is no longer good law. The facts of the Lira case are quite distinct. In the Lira case, the insurance company evaluated the value of the injuries to the plaintiff who was hit by a drunk driver. The insurance company valued the claim substantially below the level of their insurance coverage.

What the insurance company did not factor into their evaluation was the added value of a potential punitive damages award at trial that could vastly exceed the insurance policy. At trial, the jury awarded damages against the at-fault driver at less than the coverage limits of the policy. However, the jury then awarded punitive damages that, in combination with the actual damages, exceeded the insurance coverage limits. The quandary was whether the insurance company should be required to pay above its policy limits to satisfy the entire jury award.

In a 4-3 decision by the Colorado Supreme Court, the majority held that under those circumstances it was permissible for the insurance company to not factor in the punitive damages in their overall evaluation of the claim. The three judges that voted in the minority wrote in strong opposition to the majority's opinion. This is notable because all of the members of the majority in the Lira case that was written in 1996 have since retired from the bench.

It is even more notable that the three judges that were in minority are still on the bench. Because of the unique facts of that particular case and the likelihood that today's Court would see things differently, the general notion that a punitive damages award will not be covered by the insurance company is truly not how the insurance companies appear to be doing business. In point of fact, recently an insurance company paid a substantially large verdict as a result of a jury verdict that we received that included a substantial punitive damages award. While the settlement was a compromise, the amount the insurance company paid included paying significant portions of an award that the jury awarded as punitive damages.

CONCLUSION:
At Anderson Hemmat, we view it as our duty to represent our clients zealously. The very idea of filing a punitive damages claim is specifically to give the jury, as the conscience of the community, the opportunity to regulate and deter bad future conduct by punishing conduct that they deem to be outrageous. By awarding appropriate verdicts, including punitive damages, juries can ensure that their communities do not become magnets for people who willfully choose to violate the law and injure or kill others.

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